The Financial Industry Regulatory Authority Inc. has fined the digital advice company Betterment $400,000 for violating the customer protection rule and not properly maintaining its books and records.
From October 2013 through January 2015, a period when Betterment saw rapid growth of its automated investing service, Finra says Betterment engaged in "window dressing" by altering how it computes customer reserves to reduce its requirement. Finra said Betterment also did not properly segregate customers' wholly owned securities in a good control location.
Betterment provided early payments to customers selling securities, funding them by moving deposits from its sweep account to its omnibus account, which Finra said was beneficial to the firm.
Additionally, Finra said that from June 2012 to December 2014, Betterment did not create and maintain its books and records in accordance with Finra and Securities and Exchange Commission rules. For example, it did not record cash movements appropriately, and maintained its stock record on a trade date basis instead of a settlement date basis.
Finra held Richard Feldman, Betterment's financial and operations principal, responsible and fined him an additional $5,000.
Betterment filed a corrective action statement stating it would enact changes recommended by Finra, including an enhanced financial and operations principal role, expanding oversight, new compliance leadership and a review a written procedures.
"Betterment Securities takes its regulatory responsibilities seriously," a Betterment spokesperson said in a statement. "Betterment Securities worked cooperatively with FINRA during the 2014 review to address its concerns and we are proud that every examination since then has been completed without any deficiency findings. In the years since the 2014 examination, Betterment Securities has enhanced its policies and procedures and made personnel and other changes to ensure compliance with all applicable regulations."